Synchrony Financial (SYF)

[TRUISM]

Fitch: Flat Economy to Curtail Spending, Bodes Well for U.S. Credit Card ABS
Published: Sept 2, 2014 1:46 p.m. ET

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NEW YORK, Sep 02, 2014 (BUSINESS WIRE) -- Despite flat economic indicators of late, U.S. prime credit card chargeoffs again fell to unprecedented levels and 60+ day delinquencies remain near historic lows, according to the latest index results from Fitch Ratings.

Weak gains in personal income may be driving lower consumer spending, which in turn may be driving the positive readings for most credit card ABS collateral metrics. The Commerce Department reported that July personal spending declined by a seasonally adjusted rate of 0.1% from the prior month. This represents the first decline since January 2014. The Commerce Department also reported that personal income rose 0.2% in July.

While an increase, July's income reading represents the lowest month-over-month rate this year. Declines in personal consumption and increases in wages, although weak, have led to an increase in personal savings which was reported as the highest observed since December 2012. Lower spending, average gains in wages and increased savings bode well for consumers since they are theoretically in a better position to manage their debt burdens or deal with unexpected expenses. Personal bankruptcy filings, another driver of credit card chargeoffs, remain 12% lower year-over-year (YOY).

Fitch's Prime Credit Card Chargeoff Index declined 9.79% month-over-month (MOM) to 2.58%. This represents the third consecutive month of lower prime chargeoffs and the fourth new record low this year. Fitch's chargeoff index is now 23.44% lower YOY and stands 78% lower than its recession high of 11.52% in September 2009.

After five consecutive months of record setting performance, Fitch's Prime Credit Card 60+ Day Delinquency Index increased to 1.06%, one basis point (bp) higher than the previous low. Fitch's delinquency index is now down 18.46% YOY and 77% below the high of 4.54% that was reached in January 2010.

Fitch's Prime Credit Card Monthly Payment Rate (MPR) Index advanced to a 23-year high of 28.28% in August, increasing 4.43% MOM and now 9% higher YOY. During the same period, Fitch's Prime Credit Card Gross Yield Index fell 28 bps to 18.48%, a decline of 1.49% MOM.

While gross yield decreased, Fitch's Prime Credit Card Three-month Average Excess Spread Index increased 1.67% MOM to an all-time high of 13.42% in August. Prime three-month average excess spread is now nearly 9% higher YOY.

Fitch's Prime Credit Card Index was established in 1991 and tracks over $132 billion of prime credit card ABS backed by approximately $245 billion of principal receivables. The index is primarily comprised of general-purpose portfolios originated by institutions such as Bank of America, Citibank, Chase, Capital One, Discover, etc.

Fitch's Retail Credit Card Chargeoff Index rose 2% this month to 6.08%. However, despite the increase chargeoffs remain only 12 bps off the 2014 low of 5.96% which was recorded in July. Although this index is now flat YOY, it has declined nearly 55% from its all-time high of 13.41% in March 2010.

Fitch's Retail Credit Card 60+ Day Delinquency index declined 2.63% in August to a new low of 2.22%. This follows a two bp increase in July, when it had advanced from June's record low of 2.26%. The retail 60+ day delinquency index is now 4.3% lower on the year.

The retail MPR index climbed 2.65% to 15.90% in August and remains consistent with the average retail MPR levels observed over the past two years. Fitch's Retail Credit Card Gross Yield Index increased nearly 1% MOM to 27.66% and Fitch's retail three-month average excess spread index rose 2.88% to 16.81%. Fitch's indexes for gross yield and three-month average excess spread remain higher YOY by 2.5% and 4.4%, respectively.

Fitch's Retail Credit Card Index tracks more than $20 billion of retail or private label credit card ABS backed by over $31.5 billion of principal receivables. The index is primarily comprised of private label portfolios originated and serviced by Citibank (South Dakota) N.A., Synchrony Financial (Formerly GE Capital Retail Bank), and Comenity Bank (Formerly World Financial Network National Bank). More than 165 retailers are incorporated including Walmart, Sears, Home Depot, Federated, Lowes, J.C. Penney, Limited Brands, Best Buy, Lane Bryant and Dillard's, among others.





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